Computation of overpayment interest for certain large corporate overpayments (GATT interest).In connection with the General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade (GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization. (GATT See General Agreement on Tariffs and Trade. GATT See General Agreement on Tariffs and Trade (GATT). ), the Uruguay Round
The World Trade Organization conducts negotiations through what are called rounds. Agreement Act, Public Law No. 103-465, was passed in the fall of 1994. That law included, as a revenue raiser, an amendment to section 6621(a)(1) of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. that provided for a reduced rate of interest on certain overpayments of tax by a corporation (hereinafter here·in·af·ter adv. In a following part of this document, statement, or book. hereinafter Adverb Formal or law from this point on in this document, matter, or case Adv. 1. referred to as "GATT interest" . As if the computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of interest on tax underpayments and overpayments was not complicated enough already, the 1994 GATT amendment materially increased the difficulty of computing computing - computer interest on the overpayments to which it applies. This article reviews, with illustrations, the mechanics of making such computations. As amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , section 6621(a)(1) provides that, to the extent that an overpayment o·ver·pay v. o·ver·paid , o·ver·pay·ing, o·ver·pays v.tr. 1. To pay (a party) too much. 2. To pay an amount in excess of (a sum due). v.intr. To pay too much. of tax by a corporation for any taxable period (as defined by section 6621(c)(3) - meaning, in the case of an overpayment of income tax, a taxable year Taxable year The 12-month period an individual uses to report income for income tax purposes. For most individuals, their tax year is the calendar year. ) exceeds $10,000, the interest rate payable on the excess is 1.5 percentage points below the normal overpayment rate for interest periods after December 31, 1994. Thus, for periods after 1994, the interest rate differential between the rate payable on normal underpayments and the rate payable on overpayments to which the new GATT interest provision applies is 2.5 percent (instead of the normal I percent) and the interest rate differential between the rate payable on "large corporate underpayments" and such GATT interest overpayments is 4.5 percent.(1) The legislative history of the GATT interest amendment is rather sparse sparse - A sparse matrix (or vector, or array) is one in which most of the elements are zero. If storage space is more important than access speed, it may be preferable to store a sparse matrix as a list of (index, value) pairs or use some kind of hash scheme or associative memory. , and the wording of the law itself creates some uncertainties. For example, the law refers to an "overpayment of tax" in excess of $10,000, but it is not clear what is meant by a "tax." For example, does the word "tax" include interest assessed and paid on a tax deficiency? Does it include additions to the tax, additional amounts, and assessable penalties prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by Chapter 68 (sections 6651 through 6724)? The National Office of the Internal Revenue Service has issued guidance stating that, when a refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies is paid owing to owing to prep. Because of; on account of: I couldn't attend, owing to illness. owing to prep → debido a, por causa de the abatement A reduction, a decrease, or a diminution. The suspension or cessation, in whole or in part, of a continuing charge, such as rent. With respect to estates, an abatement is a proportional diminution or reduction of the monetary legacies, a disposition of property by will, when of tax, penalty, or interest previously paid by the taxpayer, then the "principal" amount, for purposes of determining whether section 6621(c)(2)'s $10,000 threshold is exceeded, consists of the entire amount the taxpayer paid (not merely the tax).(2) Hence, in the case of a corporate taxpayer that paid a $9,000 deficiency consisting of tax and penalty, along with $1,500 in interest, after the effective date of the GATT interest provision and subsequently filed a claim for refund, the reduced GATT interest rate would apply to $500 of the refund.(3) On the other hand, the National Office instructions to the field make it clear that overpayment interest accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. through December 31, 1994, on any part of an overpayment in excess of $10,000 will not be subject to the GATT interest rates after rather, the amount of such interest as of the end of 1994 will continue compound at the normal overpayment interest rates. Furthermore, the first $10,000 of an overpayment will continue to accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. interest at the normal overpayment interest rates even though amounts over $10,000 are subject to the lower GATT interest rates. Hence, in any circumstance Circumstance or circumstances can refer to:
Overpayment of tax $25,000.00 Normal overpayment interest on first $10,000 1/15/95 - 11/15/95 $715.59 GATT interest on $15,000 excess 1/15195 - 11/15/95 873.87 Total overpayment interest payable 1,589.46 Total amount payable $26,589.46 If the normal overpayment interest rate applied to the entire overpayment, the interest payable for the period would have been $1,789.00 (computed as a single element), rather than $1,589.46. On the other hand, if the lower GATT interest rates applied to the entire overpayment, the interest payable would be only $1,456.46. Where the overpayment occurs before 1995 or in steps at different times, the computations become more complicated, because the GATT interest rate applies only to the "tax" (which the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. interprets as including assessed interest and penalties) and not to overpayment interest accrued before 1995 or to accrued overpayment interest on the first $10,000 of overpayment of tax. Furthermore, the $10,000 threshold can be met by refunds previously made, including refunds made before 1995. The following examples, derived from the National Office instructions to the field, illustrate some of the possible variables that might arise. The GATT interest provision is a product of political and fiscal expediency ex·pe·di·en·cy n. pl. ex·pe·di·en·cies 1. Appropriateness to the purpose at hand; fitness. 2. Adherence to self-serving means: . Under the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , perhaps one should not be surprised at its shortcomings A shortcoming is a character flaw. Shortcomings may also be:
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. is not a banking operation designed to make a profit on the difference between the interest it pays for borrowed funds and the interest it charges on loans.4 Furthermore, is there a rational basis for the $10,000 threshold for the application of the GATT interest rate? The effect of the 1.5-percent differential between the normal overpayment interest rate and the GATT interest rate for the $10,000 threshold amount does not seem sufficiently material to warrant the resulting computational Having to do with calculations. Something that is "highly computational" requires a large number of calculations. complications. Notwithstanding such questions, for the present at least we must live with what we have. The foregoing discussion and illustrations is intended to contribute to an understanding of the operations of the new GATT interest provision and thereby enhance the ability of taxpayers to verify (1) To prove the correctness of data. (2) In data entry operations, to compare the keystrokes of a second operator with the data entered by the first operator to ensure that the data were typed in accurately. See validate. the correctness of interest computations made by the IRS. (1) This higher interest rate differential points up the desirability of managing, to the extent possible, offsets and credits between overpayments and underpayments. The legislative history of the GATT interest provision states that [t]he Secretary [of the Treasury] should implement the most comprehensive crediting procedures under section 6402 that are consistent with sound administrative practice, and should do so as rapidly as possible." (2) Memorandum dated February 27, 1995, for IRS Chief Compliance Officers and for International (Examination) from John J. Monaco, Assistant Commissioner (Examination) captioned "General Agreement on Tariffs and Trade (GATT) -- Credit Interest Computations on Refunds." (3) The correctness of the IRS interpretation may be open to question. Presumably pre·sum·a·ble adj. That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. , it is derived from provisions such as section 6601(e)(1), which states that interest shall be assessed, collected, and paid in the same manner as taxes, and section 6724(b), which states that penalties shall be paid in the same manner as a tax. But do such procedural provisions warrant a conclusion that overpayments of such amounts constitute an "overpayment of tax" for purposes of section 6621(a)(1)? (4) In the light of the complexities of today's tax laws, it is virtually inevitable that there will be mistakes and disputes that result in both underpayments and overpayments of tax. Frequently an adjustment is principally one of timing, shifting the incidence of income or deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. from one tax period to another. Sometimes the two periods are not part of the same audit cycle, so it is difficult or impossible to offset or credit the amounts owed. If money is owed both ways, should the taxpayer be charged more for his use of the money owed to the government for one period than he receives from the government for money owed to him for another period? Furthermore, while a taxpayer might sometimes be said to bear some responsibility for an overpayment,of tax, a taxpayer never voluntarily submits to the payment of a penalty. If the IRS improperly im·prop·er adj. 1. Not suited to circumstances or needs; unsuitable: improper shoes for a hike; improper medical treatment. 2. imposes a penalty that must be refunded, is there any reason why the government should pay a lower rate of interest on the refund of the amount it improperly imposed? All of the Overpayment Occurs Before 1995 [TABULAR tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. DATA OMITTED] Example 2: Overpayment in Excess of $10,000 Occurs Before 1995 plus Additional Overpayment after 1994
Tax overpayment on 8/31/94 $22,000.00
Add'l tax overpayment on 1/31/95 3,000.00
Total tax overpayment to be refunded $25,000.00
Refund computation date 3/31/95
Overpayment interest accrued to
12/31/94 on $22,000
8/31/94 - 12/31/94 on
$22,000 at normal rate $577.58
Overpayment interest on first
$10,000 of tax plus interest
accrued to 12/31/94 ($577.58)
12/31/94 - 3/31/95 on
$10,577.58 at normal rate 210.70
Overpayment interest accrued to
1/31/95 on $12,000 excess
12/31/94 - 1/31/95 on
$12,000 at GATT rate 66.42
Overpayment interest to 3/31/95 on $15,000 excess ($12,000 + $3,000) tax plus GATT interest accrued to 1/31/95 - 3/31/95 on $15,066.42 at GATT rate 159.12 Total interest 1,013.82 Total payment due $26,013.82 If the normal overpayment rate applied to the two overpayments amounts, the overpayments interest would have been $1,066.36, rather than $1,013.82. It would have been computed in two elements, one on $22,000 for the period from August 31, 1994, to March 31, 1995, and the other on $3,000 for the period from January 31, 1995, to March 31, 1995 The computations in this example could as well be made with a different approach for the last two interest elements, but with the same results, as follows:
Tax overpayment on 8/31/94 $22,000.00
Tax overpayment on 1/31/95 3,000.00
Total tax overpayment to be refunded $25,000.00
Refund computation date 3/31/95
Overpayment interest accrued to
12/31/94 on $22,000
8/31/94 - 12/31/94 on
$22,000 at normal rate $577.58
Overpayment interest on first
$10,000 of tax plus interest
accrued to 12/31/94 ($577.58
12/31/94 - 3/31/95 on
$10,577.58 at normal rate 210.70
Overpayment interest on
$12,000 excess
12/31/94 - 3/31/95 on
$12,000 at GATT rate 193.86
Overpayment interest on additional
$3,000 excess
1/31/95 - 3/31/95 on
$3,000 on GATT rate 31.68
Total interest 1,013.82 Total payment due $26,013.82 Thus, the result is the same whether you aggregate all of the GATT interest and principal to the additional overpayment date and then compute To perform mathematical operations or general computer processing. For an explanation of "The 3 C's," or how the computer processes data, see computer. GATT overpayment interest on that aggregate amount from that date to the refund computation date or, alternatively, compute GATT overpayment interest to the refund computation date separately for each GATT principal overpayment. Example 3: Overpayment Before 1995 Not in Excess of $10,000 but with Additional Overpayment after 1994 and with Total Overpayment in Excess of $10,000
Tax overpayment on 12/1/94 $ 8,000.00
Additional tax overpayment on 1/12/95 8,000.00
Total tax overpayment to be refunded $ 18,000.00
Refund computation date 3/31/95
Overpayment interest accrued to
1/21/95 (when overpayment first
exceeded $10,000)
12/1/94 - 1/12/95 on
$8,000 at normal rate $ 73.98
Overpayment interest on first
$10,000 of tax plus interest
accrued to 1/12/95 ($73.98)
1/12/95 - 3/31/95 on
$10,073.98 at normal rate 173.69
Overpayment interest on $6,000 excess 1/12/95 - 3/31/95 on $6,000 at GATT rate 83.92 Total interest 331.59 Total payment due $16,331.59 If the normal overpayment rate applied to the entire $16,000 overpayment for the period, the overpayment interest would have been $351.11, rather than $331.59. It would have been computed in two elements, one on $8,000 for the period from 12/1/94 to 3/31/95 and the other on $8,000 for the period from January 12, 1995, to March 31, 1995. Example 4: Two Overpayments under $10,000 Before 1995 Aggregating More Than $10,000; One Refunded Before 1995 (i.e., the Previous Refund Does Not Exceed the $10k Thresh-old)
Tax overpayment on 6/15/93 $ 4,000.00
Tax refund already issued 4/15/93 8,000.00
Total tax overpayment $ 12,000.00
Less tax refund already issued 8,000.00
Remaining tax overpayment to be refunded $ 4,000.00
Refund computation date 3/31/95
Overpayment interest accrued to
12/31/94 on $4,000
6/15/93 - 12/31/94 on
$4,000 at normal rate $421.85
Overpayment interest on remaining
part of first $10,000 (i.e., $2,000)
plus interest accrued on 12/31/94
($421.85)
12/31/94 - 3/31/95 on
$2,421.85 at normal rate 48.24
Overpayment interest on $2,000 excess
12/31/94 - 3/31/95 on
$2,000 at GATT rate 32.31
Total interest 502.40
Total payment due $ 4,502.40 If the normal overpayment rate applied to the entire $4,000 remaining tax overpayment for the period, the overpayment interest would have been $509.93, rather than $502.40, and it would have been computed as a single element for the period from June 15, 1993, to March 31, 1995. Example 5: Overpayment over $10,000 Refunded Before 1995; Additional Overpayment Before 1995 to Be Refunded after 1994 (i.e., the Previous Refund Exceeds the $10k Threshold)
Tax overpayment on 4/15/93 $10,000.00
Tax refund previously issued 15,000.00
Total tax overpayment $25,000.00
Less tax refund already issued 15,000.00
Remaining tax overpayment to be refunded $10,000.00
Refund computation date 4/30/95
Overpayment interest accrued to
12/31/94 on $10,000
4/15/93 - 12/31/94 on
$10,000 at normal rate $1,166.03
Overpayment interest on interest
accrued to 12/31/94 ($1,166.03)
12/31/94 - 4/30/95 on
$1,166.03 at normal rate 32.06
Overpayment interest on remaining
$10,000 tax to be refunded
12/31/94 - 4/30/95 on
$10,000 at GATT rates 224.38
Total interest 1,422.47 Total payment due $11,422.47 JAMES V James V, king of Scotland James V, 1512–42, king of Scotland (1513–42), son and successor of James IV. His mother, Margaret Tudor, held the regency until her marriage in 1514 to Archibald Douglas, 6th earl of Angus, when she lost it to John . HEFFERNAN is a partner in the Washington, D.C., office of the law firm of Sutherland Sutherland or Sutherlandshire, former county, N Scotland. Under the Local Government Act of 1973, Sutherland became (1975) part of the new Highland region (now a council area). , Asbill & Brennan, which also has offices in Atlanta, Georgia Georgia, country, Asia Georgia (jôr`jə), Georgian Sakartvelo, Rus. Gruziya, officially Republic of Georgia, republic (2005 est. pop. 4,677,000), c.26,900 sq mi (69,700 sq km), in W Transcaucasia. , Austin, Texas, and New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . He wrote an article on interest computations entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: "Interest on Federal Tax Deficiencies and Overpayments" which appeared in the January-February 1990 issue of The Tax Executive, with a supplement published in the May-June 1990 issue. Mr. Hefferman has developed a computer program, the current version of which is designated TAXINT-95, for use by clients of his firm on IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) or compatible personal computers that computes interest at the various rates and in the various methods used by the Internal Revenue Service over the years. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion